All eggs, one basket, no spice

For investors who believe they hold a diversified global equity portfolio, the data tells a more uncomfortable story. Across both developed and emerging market indices, concentration has reached levels that effectively reduce broad equity exposure to a single bet on one theme.

The Illusion of Diversification

The MSCI World index spans 1,310 constituents across developed markets. On paper, this is a well-diversified exposure to global economic growth. Yet approximately 27% of that index now sits in just 10 stocks, all connected by a single theme. 

Investors in a passive global equity strategy are (whether they realise it or not) making a substantial directional call on the AI trade.

The picture in emerging markets is even more stark. Around 30% of the MSCI Emerging Markets (EM) index is concentrated in just five stocks: Taiwan Semiconductor (TSMC), SK Hynix, Samsung, Tencent, and Alibaba. TSMC alone accounts for roughly 14% of the entire index. These are not companies driven by emerging market fundamentals in any traditional sense – domestic consumption, infrastructure buildout, or demographic expansion. They are globally significant businesses whose revenues are inextricably tied to the same AI thematic driving US mega-cap tech.

When we look at the overall behaviour for both markets, EM and global developed exposures have maintained their high correlation, with the returns increasingly moving together as the AI narrative continues to dominate headlines.

For investors, this creates what amounts to a binary outcome: when sentiment on AI is positive, both allocations rise together; when it turns, both fall in unison. 

Adding an emerging markets sleeve to a global equity portfolio is no longer the diversification it once was.

India: A Different Return Stream

India stands apart from this trend in a meaningful way. While EM correlations with global equities have remained stubbornly elevated, India's rolling three-year correlation with global markets has been declining, and continues to do so. India has not been a participant in the AI-driven rally. Its technology sector, built around IT services rather than semiconductor manufacturing, has actually been de-rated in recent periods due to concerns around deflation in outsourced services.

The index composition reflects this structural difference. Across the MSCI India index, nine distinct sectors each carry a weight greater than 8% – financials, consumer discretionary, industrials, healthcare, energy, materials, and others all contribute meaningfully. 

This is a market reflecting a large, complex, and growing domestic economy with multiple independent drivers of return.

Structural Growth with Real Depth

India's structural investment case rests on several durable and converging themes.

• Energy: India is in the midst of a significant pivot toward renewables (solar, hydro, and wind), driven by both energy security needs and government policy. This transition is creating substantial domestic investment opportunities across the energy value chain.            
• Exports: The Indian government has set a clear target: growing exports from approximately US$ 860 bn in FY26 to over US$ 1 trillion. The mix of those exports is shifting upward in value – away from pure volume plays and toward engineering goods, specialty chemicals, pharmaceuticals, and electronic manufacturing. India is already a significant producer of generic pharmaceuticals for global markets, and that footprint is expanding. The country is also increasingly embedded in global manufacturing supply chains, from automotive components to consumer electronics.                                                                                                
• Demographics: India's structural advantage is well understood but still underappreciated in its duration. With a population of over 1.4 bn and a median age of approximately 29, India stands at the beginning of its peak working-age population cycle – a dynamic that has historically been a powerful driver of consumption, investment, and productivity.

Valuation: The Case Has Rarely Been Stronger

Beyond the structural story, current entry valuations make the case more compelling still. After a difficult 18 to 20 months (a period that has represented the largest sustained underperformance of Indian equities relative to emerging markets on record), the MSCI India now trades at approximately 18 times one-year forward earnings. Historically, India has commanded valuations above 20 times. 

For long-term investors, this is a rare combination: a structural growth market available at a material discount to its own history.

The Case for Active Management

Passive exposure to India risks missing the most attractive parts of the opportunity while remaining exposed to yesterday’s winner. The breadth of opportunity in the Indian market is enormous – spanning financials, industrials, healthcare, energy transition, exports and consumer sectors. Active management, with the ability to allocate across the full breadth of India's economy and seek out quality businesses at reasonable prices, remains the most effective way to turn India's structural growth story into durable portfolio returns.